Hasbro 2006 Annual Report Download - page 64

securitization program, and borrowing under lines of credit. Borrowings under the lines of credit were on
terms and at interest rates generally extended to companies of comparable creditworthiness.
In June 2006, the Company entered into a five-year revolving credit agreement (the “Agreement”) which
replaced the prior amended and restated credit agreement. The Agreement provides the Company with a
$300,000 committed borrowing facility. The Company has the ability to request increases in the committed
facility in additional increments of at least $50,000, up to a total committed facility of $500,000. The
Company is not required to maintain compensating balances under the Agreement. The Agreement contains
certain financial covenants setting forth leverage and coverage requirements, and certain other limitations
typical of an investment grade facility, including with respect to liens, mergers and incurrence of indebtedness.
The Company was in compliance with all covenants as of and for the year ended December 31, 2006.
The Company pays a fee (currently .10%) based on the unused portion of the facility and interest equal to
Libor or Prime plus a spread on borrowings under the facility. The amount of the spread to Libor or Prime
varies based on the Company’s long-term debt ratings and the Company’s leverage. At December 31, 2006,
the interest rate under the facility was equal to Libor plus 0.50% or Prime.
Securitization
As of December 31, 2006, the Company is party to a receivable securitization program whereby the
Company sells, on an ongoing basis, substantially all of its U.S. trade accounts receivable to a bankruptcy-
remote, special purpose subsidiary, Hasbro Receivables Funding, LLC (HRF), which is wholly owned and
consolidated by the Company. HRF will, subject to certain conditions, sell, from time to time on a revolving
basis, an undivided fractional ownership interest in up to $250,000 of eligible domestic receivables to various
multi-party commercial paper conduits supported by a committed liquidity facility. Under the terms of the
agreement, new receivables are added to the pool as collections reduce previously held receivables. The
Company expects to service, administer, and collect the receivables on behalf of HRF and the conduits. The
net proceeds of sale will be less than the face amount of accounts receivable sold by an amount that
approximates the purchaser’s financing costs. In December 2006, this agreement was amended. Under the
amended agreement, the expiration date is December 1, 2011, subject to an annual renewal process. Also
under the amended agreement, the maximum aggregate outstanding purchase limit for interest in receivables
which may be sold is raised to $300,000 during the period from fiscal October to fiscal January of each year.
The receivables facility contains certain restrictions on the Company and HRF that are customary for
facilities of this type. The commitments under the facility are subject to termination prior to their term upon
the occurrence of certain events, including payment defaults, breach of covenants, breach of representations or
warranties, bankruptcy, and failure of the receivables to satisfy certain performance criteria.
As of December 31, 2006 and December 25, 2005 the utilization of the receivables facility on both dates
was $250,000, which was the maximum available to the Company to sell under this program at December 25,
2005. As of December 31, 2006, the Company had an additional $50,000 available to sell under the facility.
The transactions are accounted for as sales under SFAS 140. During 2006 and 2005, the loss on the sale of the
receivables totaled $2,241 and $6,925, respectively, which is recorded in selling, distribution and administra-
tion expenses in the accompanying consolidated statements of operations. The discount on interests sold is
approximately equal to the interest rate paid by the conduits to the holders of the commercial paper plus other
fees. The discount rate as of December 31, 2006 was approximately 5.73%.
Upon sale to the conduits, HRF continues to hold a subordinated retained interest in the receivables. The
subordinated interest in receivables is recorded at fair value, which is determined based on the present value of
future expected cash flows estimated using management’s best estimates of credit losses and discount rates
commensurate with the risks involved. Due to the short-term nature of trade receivables, the carrying amount,
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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)